SHANTI LAL DEORA,SUMERPUR vs. ACIT, CIRCLE, PALI

IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 22/JODH/2021 Assessment Year:2016-17 Shri Shanti LalDeora, Vs. A.C.I.T., Hotel Inder Palace, Bhagat Circle- Pali Singh Circle, Sumerpur, Dist.- Pali-306902 (Raj.) PAN No. ADHPD 4172 A

Assessee by Shri Rajendra Jain, Adv. & ShriMohitSoni, Adv. Revenue by Smt. Sanchita Kumar, CIT-DR Date of Hearing 11/08/2021 Date of Pronouncement 08/09/2021

O R D E R PER:SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. Pr.CIT-1, Jodhpur dated 24/03/2021 for A.Y. 2016-17 passed u/s 263 of the Income Tax Act, 1961 (in short, the Act) wherein following grounds have been raised: “1. That on the facts and in the circumstances of the case, the order U/s 263 passed by Pr.CIT-1, Jodhpur is bad in law and bad in facts. 2. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in assuming jurisdiction and initiating proceeding U/s 263 of the Act since the order passed by the ld. AO was neither ‘erroneous’ nor prejudicial to the interest of the revenue as the AO had not only made adequate inquiries,

2 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT but had also undertaken necessary verification on basis of the details sought from the assessee during the course of the assessment proceedings and had taken one of the permissible views as per law. 3. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in assuming jurisdiction merely change of opinion by reappraising evidence which is not within the parameters of revisional jurisdiction U/s 263 of the Act. 4. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in both on facts and in law, in assuming the jurisdiction U/s 263 of the Income Tax Act, 1961 without considering the material fact that during the course of the assessment proceedings, the assessee had brought on record all the materials and evidences relating to the concerning issue and the same were duly verified by the AO before passing the assessment order in the case of the assessee. 5. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in proposing the disallowance of deduction U/s 54F ignoring the fact that the appellate has invested the consideration received by him in construction and has rightly claimed deduction under Section 54F of the Act as per law. 6. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in exceeding his jurisdiction by issuing direction on the issue which was not subject matter of show cause notice U/s 263 of the Act. 7. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in issuing direction the ld. AO to recompute the capital gai on sale of property by adopting 50% of shares of sales consideration which is not only against the principle of natural justice but also beyond the jurisdiction. 8. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in negation of overriding principles of natural justice which were explicitly required to be followed while exercising the power U/s 263 of the Act. 9. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in ignoring the principle of law that the beneficial provisions must be considered liberally.

3 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT 10. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur grossly erred in setting aside the assessment order passed by the ld. AO without any finding as to how the assessment order passed by the ld. AO is erroneous so as it is prejudicial the interest of revenue. 11. That on the facts and in the circumstances of the case, the ld. PCIT-1, Jodhpur erred in recording various findings in the order are contrary to the material available on record. 12. That the petitioner may kindly be permitted to raise any additional or alternative grounds at or before the time of hearing. 13. The petitioner prays for justice and relief.” 2. By way of this appeal, the assessee is basically aggrieved by the order of the ld. PCIT passed U/s 263 of the Act. The briefly stated facts of the case are that the assessee is an individual and derived income from sale of marble & granites. In addition to above the assessee is a partner in the firm and received share of profit etc. Further also the assessee has disclosed income from capital gain in respect of sale of property. On 30/07/2016 the assessee has filed his return of income declaring total income of Rs. 2,10,49,300/-. The case of assessee was selected for limited scrutiny and accordingly notice u/s 143(2) of the Act had been issued on 31/08/2017 and finally, the A.O. completed the assessment U/s 143(3) of the Act on 05/11/2018 accepting the returned income filed by the assessee. Thereafter vide notice dated 04/11/2020, the ld. PCIT informed the assessee for fixing the case for revision U/s 263 of the Act but no reply was furnished on behalf of the assessee. Thereafter another notice dated 23/11/2020 was issued fixing the date of hearing and with regard to the notice

4 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT dated 23/11/2020, the authorized representative of the assessee appeared and filed written submissions. After considering the submissions of the assessee and material placed on record, the ld. PCIT passed order U/s 263 of the Act on the ground that the order U/s 143(3) dated 05/11/2018 passed by the A.O. was found to be erroneous in so far as it is prejudicial to the interests of the Revenue and cancelled the assessment order passed by the A.O. U/s 143(3) of the Act with direction to pass the assessment order afresh.

5 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT Sumerpur in respect of construction of house had been furnished before the ld AO as well as before the PCIT-1, Jodhpur.

2] It is further submitted while passing the assessment order the ld AO had made verification and examination in respect of claim of deduction u/s 54 with reference to documentary evidences and explanation furnished by the assessee. From the assessment record the ld AO had required various documents and evidences in support of claim of deduction and the assessee had furnished every type of document and explanation as required by the ld AO. In other word the ld AO had conducted proper and judicially inquiry and examined the issue with reference to various documentary evidences and explanations and thereafter reached a conclusion that the deduction u/s 54 as claimed by assessee is not only genuine but also accordance with provisions of the law.

3] That by letter dated 04/02/2021 the ld PCIT had also directed the assessee to furnish cash book with narration, complete details of the contractor who have constructed the house property and other information during the revision proceeding u/s 263 of the Act.

4] In response to letter of PCIT-1, Jodhpur the assessee had furnished the documentary evidences and information as required by the PCIT which were also on record of the ld AO.

5] That on 24/03/2021 the ld PCIT-1, Jodhpur passed the order u/s 263 in which he had set aside the order of ld AO with following direction:- "The AO is directed to examine the allowability of deduction u/s 54F on the property claimed to have been sold in the year under reference viz-a-viz source of investment in purchase of plot and construction thereon on the basis of cash book, bank book, contractors to whom payment for construction has claimed to have been made."

6 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT The ld PCIT had further issued direction on the issue which was neither part of show cause notice nor any explanation sought from the assessee during the revision proceeding. "The AO is directed to re-compute the capital gain on the sale of property in question after adopting 50% of the sale consideration of Rs. 8,01,00,000/- in the hands of the assessee. The AO is also directed to refer the issue of adopting remaining 50% sale consideration in the hands of ShriMangiLal Mali (PAN AARPD2140D), to his Assessing Officer for re-computing LTCG in the AY 2016-17 after taking appropriate action as per the Income-tax Act, 1961."

6] The order passed by ld AO is contrary to provision of law and law decided by Hon’ble Courts and as such in light of submission herein below, the order passed by ld PCIT may kindly be quashed. It is submitted that the case was selected for limited scrutiny on the reason” Whether capital gains/ loss is genuine and has been correctly shown in the return of income." Not for “deduction claimed under the head capital gain”. However, during the assessment proceedings the AO had also made substantial verification & examination on the other issue as the case may be taken up for comprehensive scrutiny, without following legal procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. Therefore, the reason on which the ld PCIT-1 Jodhpur had issued the notice u/s 263 and acquired the jurisdiction is not only illegal but also against the circular issued by Hon’ble CBDT and law decided by Hon’ble Court. He relied on the order Hon’ble ITAT Jaipur Bench in the case of Mahendra Singh Dhankhar (HUF) V/s ACIT reported in (2021) 35 NYPTTJ 458 (Jp) and the Hon’ble ITAT Pune Bench in the case of M/s. Storewell Construction & Engineers, V/s Pr. CIT in ITA No 768/PUN/2019 dated 05.12.2019.

7 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT of revenue is apparently contrary to the provisions of the law and law decided by the Hon'ble Courts.

a] That at page No. 3 & 4 the ld PCIT had discussed the issue in respect of claim of deduction u/s 54F of the Act and recorded the observation in the order reads as under:- "The AO is directed to examine the allowability of deduction u/s 54F on the property claimed to have been sold in the year under reference viz-a-viz source of investment in purchase of plot and construction thereon on the basis of cash book, bank book, contractors to whom payment for construction has claimed to have been made."

b] That during the assessment proceedings as well as revision proceeding the assessee had submitted the documentary evidences and explanations in respect of genuineness of the claim of deduction u/s 54F are as under:- "Queries raied by AO P.B Page 5 to 8, 11 & 12 Reply by assessee P.B. Page 9 & 10, 13 Construction A/c P.B. Page 14 to 17 Certificate of Nagar Palika, Sumerpur P.B. Page 18 in respect of construction of house Submission before PCIT P.B. 34 to 36, 39"

i. From the above, it is crystal clear, that the ld AO had raised the queries in respect of allowiblity of deduction u/s 54F which were compiled by the assessee and the ld AO on meticulous appreciation of evidence on record has allowed the claim of deduction which is not only accordance with provision of law but also supported from documentary evidences and as such there is no error in the Assessment order. Further also during the revision proceedings the assessee had explained with legal & valid documentary evidences that claim made by assessee on the basis of which the ld AO had allowed the same. It is further pointed out before ld PCIT that the facts narrated in show cause notice is apparently

8 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT incorrect and false as the assessee had constructed the house on other residential plot not on the purchase in the year under consideration and in support of same the assessee had furnished legal & valid evidences which were on record of ld AO. Therefore the assessment order of the AO cannot be held to be erroneous and prejudicial to the interest of revenue. In regard, he relied on the decisions of Hon'ble ITAT, Jaipur Bench in the case of Virendra Singh Bhadauriya v/s PCIT reported in 211 TTJ (Jp) 452:-

ii. In CIT vs. Leisure Wear Exports Ltd. [2010] 46 DTR (Del) 97 Hon'ble Delhi High Court held that power of revision u/s 263 of the Act is not meant to be exercised for the purpose of directing the AO to hold another investigation, without describing as to how the order of the AO is erroneous.

iii. Hon'ble Gujarat High Court in the case of CIT Vs R. K. Construction Co. 313 ITR 65 held as under:- "As far as law is concerned, the Assessing Officer has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the CIT in revisional proceedings, the Commissioner has taken a different view. However, in the revisional proceedings under section 263, it is not open for the Commissioner to take such a different view in view of the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. There is nothing on record to suggest that the view taken by the Assessing Officer is unsustainable at law. This Court has also taken the same view in case of Arvind Jewellers whereby the order passed by the Commissioner under section 263 of the Act was quashed and set aside."

iv. Hon'ble Rajasthan High Court in the case of CIT Vs Laxmi Narayan reported in 402 ITR 117 (Raj), the Hon’ble High Court held as under:- Revision—Erroneous and prejudicial order—Lack of proper enquiry— Original assessment order was passed by the AO under s. 143(3) after due verification of all the documents on record—Revision under s. 263 was based merely on change of opinion, hence not sustainable—Malabar

9 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) followed (Para 7.1) Conclusion : Original assessment order was passed by the AO under s. 143(3) after due verification of all the documents on record; revision under s. 263 was based merely on change of opinion, hence not sustainable.

c] That the PCIT-1, Jodhpur vide para No. ii had issued further made observation on the issue which was neither part of show cause notice nor any explanation and given illegal direction to the ld AO which is beyond his jurisdiction. Further as per provisions of section 263 it is mandatory for PCIT that "....he may, after giving the assessee an opportunity of being heard and after making or causing giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.". Therefore the direction issued by the PCIT is beyond his jurisdiction and deserves to be quashed.

d] It is further submitted that during the assessment proceedings the ld AO had issued notice u/s 142(1) in which he had raised specific queries in respect of above issue and the assessee had replied each & every issue and also furnished the legal & valid documentary evidences in support of sales consideration declared by him was genuine. Further also the ld AO had also obtained the copies of return of income and computation in respect of other co-partners and verified the facts that the each party had disclosed the sales consideration and the total sales consideration as received are duly disclosed for taxation by the each party. It is further relevant to mention here that in the case of Mangilal Deora the ld AO had completed the assessment u/s 143(3) and accepted the sales consideration as disclosed by him. (P.B. Page 5 to 31)

10 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT

e] The ld AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion on the basis of legal & valid documentary evidences and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion and also there was no revenue loss as the entire sales consideration had been disclosed and offered for taxation as per provisions of law by the respective parties.

f] Further also the ld PCIT had not analyzed the documentary evidences and explanations available on record of ld AO in right prospective & judicially manner as the legal documentary evidences and the copies of return and assessment order of respective parties are on record which itself established that the entire sales consideration as obtained from sale of land was duly offered for taxation and there was no error committed by the ld AO while accepting the sales consideration disclosed by the assessee. Further also the ld AO in the case of other party had accepted such fact while passing the assessment order u/s 143(3) of the Act. Therefore the observation made by the ld AO is not only contrary but also against the principle of natural justice.

g] That in the order u/s 263 the ld AO had not recorded any specific finding that how the order passed by the ld AO is erroneous which resultant loss of the revenue. Therefore the direction issued is totally illegal and beyond the jurisdiction in other word the ld PCIT had charged the tax twice on same transaction which is not permissible in the law.

h] It is settled position of law that revisionary powers of CIT u/s 263 can be invoked only when the assessment order is erroneous as well as prejudicial to the interest of the Revenue. Since, in the case of assessee, the assessment order could not be established to be erroneous, by Pr CIT-. The sole ground of 263 jurisdictions by the Pr. CIT was that the ld AO did not make proper

11 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT enquiry. This itself cannot be said to be erroneous and prejudicial to the interest of the Revenue since the AO was alive on all these questions and he has called upon the assessee to produce relevant material in regard to areas which were stated by the PCIT in his show cause notice. It is very important to mention here that the ld PCIT is not specific as to the reasons why the assessment made by the AO was erroneous and prejudicial to the interest of the Revenue. The PCIT has not arrived at any independent finding for issuance of notice under s. 263. Further, a thorough enquiry has been conducted by the AO which comprised of questionnaire to which the assessee has submitted his reply, thereafter there is a notice under s. 142(1) with a query letter to which again the assessee has replied to the queries, so it Is evident there has been a detailed investigation and enquiry conducted by the AO. When such judicially exercise has been apparently made by ld AO, therefore the order of the AO cannot be branded as erroneous and prejudicial to the interests of the Revenue. The exercise of jurisdiction under s. 263 by the PCIT is, not valid in eye of law. Reliance is placed on the following judicial pronoucements: CIT vs. GirdhariLal (2002) 176 CTR (Raj) 92 : (2002) 258 ITR 331 (Raj), CIT vs. Shiv Hari Madhu Sudan (1998) 233 ITR 649 (Raj), CIT vs. Kanda Rice Mills (1989) 178 ITR 446 (P&H) CIT vs. ArvindJewellers 259 ITR 502 (Guj) ITAT Indore Bench in the case of Rakesh Khandelwal V/s CIT ITA No.204/Ind/2019 dated 29.01.2020 ITAT Jodhpur Bench in the case of Shiv Lal Choudhary V/s CIT reported in 188 TTJ_UO (Jd)(UO) 57 5. On the other hand, the ld. CIT-DR has vehemently supported the order of the ld. PCIT and submitted that the ld. PCIT had passed order discussing all the material facts and legal issues pointwise. He passed a speaking order by relying on various judicial pronouncements. She has further submitted that the ld. PCIT

12 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT directed the A.O. to pass afresh assessment order discussing all the issues raised in the order of the PCIT after making proper enquiries.

13 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT verification and examination the documentary evidences and explanations with reference to the reasons on which the case was selected for scrutiny and the provisions of the law and thereafter had accepted the capital gain as declared by the assessee as genuine and accordance with the provisions of the law. On 04/11/2020 the ld PCIT-1, Jodhpur had issued the notice u/s 263 of the Act. In the notice, the PCIT had considered the order passed by the AO is erroneous and prejudiced to the interest of the revenue on following reasons:- "2.1 On further perusal of record it is noticed that you have purchased a land for Rs. 1900000/- on 24.02.2016 and incurred Rs. 6106014/- on account of building construction during the period 23.11.2015 to 31.07.2016. Out of this you have incurred Rs. 1120620 prior to purchase of land (26.02.2016) and Rs. 1524500 after 30.07.2016 (date of filing return). Further while claiming deduction u/s 54F you have claimed deduction only in respect of construction and not on account of purchase of land. 2.2 As per the provisions of section 54F of the Act, exemption under section 54F is allowed in respect of investment made prior to date of filing of return. In the light of the above actual expenditure for claiming exemption u/s 54F was Rs. 3460894/- (6106014- 1120620-1524500) only and therefore exemption u/s 54F was to be allowed for Rs. 3273202/- (3460894 x 25724885 / 27200000) only. However, while completing assessment full exemption for Rs. 5343588 has been allowed, as claimed by you."

In response to notice u/s 263 the assessee had explained that the reason assigned by the ld PCIT, Jodhpur is factually not correct as the assessee had made the construction on the land which was obtained inherited not on the land which was purchased during the year under consideration and as such the factual position as narrated by the ld PCIT, Jodhpur is contrary and also incorrect. Further the complete details in respect of expenditure incurred on construction of house on such land alongwith certificate of Nagar Palika,

14 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT Sumerpur in respect of construction of house had been furnished before the AO as well as before the PCIT. 7. We observed that while passing the assessment order, the AO had made verification and examination in respect of claim of deduction u/s 54 with reference to documentary evidences and explanation furnished by the assessee. From the assessment record, the AO had required various documents and evidences in support of claim of deduction and the assessee had furnished every type of document and explanation as required by the AO. In other word the AO had conducted proper and judicially inquiry and examined the issue with reference to various documentary evidences and explanations and thereafter reached a conclusion that the deduction u/s 54 as claimed by assessee is not only genuine but also accordance with provisions of the law.

15 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT in the return of income." Not for “deduction claimed under the head capital gain”. However, during the assessment proceedings the AO had also made substantial verification & examination on the other issue as the case may be taken up for comprehensive scrutiny, without following legal procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. Therefore, the reason on which the ld PCIT had issued the notice u/s 263 and acquired the jurisdiction is not only illegal but also against the circular issued by Hon’ble CBDT and law decided by Hon’ble Court. In this regard, we draw strength from the decision of the Coordinate Bench of ITAT, Jaipur as relied by the ld. AR in the case of Mahendra Singh Dhankhar (HUF) V/s ACIT reported in (2021) 35 NYPTTJ 458 (Jp)wherein it was held: “Scope of enquiry in case of limited scrutiny is limited to the extent of the issues for which case is selected for scrutiny under CASS. The CBDT has issued instructions from time to time in this respect and has specifically instructed the taxing authorities that scope of enquiry should be limited to verification of all the particulars for which limited scrutiny was taken up under CASS. However, in case during the assessment proceedings the AO is of the view that substantial verification of other issue is also required, then the case may be taken up for comprehensive scrutiny with the approval of the Principal CIT/Director of IT concerned. It is also instructed that such an approval shall be accorded by the Principal CIT/Director of IT in writing after being satisfied about the merits of the issue(s) necessitating wider and detailed scrutiny in the case. Thus, the AO is duty-bound to follow the instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of the competent authority, conducting an enquiry on the issue which is outside the limited scrutiny would be beyond the jurisdiction of the AO. As a necessary corollary, the Principal CIT under s. 263 cannot be permitted to traverse beyond the jurisdiction that was

16 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT vested with the AO while framing the assessment as what cannot be done directly cannot be done indirectly. Therefore, where the matter is selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening the scope of jurisdiction that was originally vested with the AO while framing the assessment” The Coordinate Pune Bench in the case of M/s. Storewell Construction & Engineers, V/s Pr. CIT in ITA No 768/PUN/2019 dated 05.12.2019has held as under: “4. The Ld. Pr. Commissioner of Income Tax on the other hand invoked the revisionary jurisdiction u/s.263 of the Act to look into the other issues relating to the assessee which were not within the purview of the limited scrutiny. The CBDT Circular vide its letter F-No.225/26/2006-ITA-II (Pt.), 8th September, 2010 has described the procedure for handling limited scrutiny cases wherein the Assessing Officer shall remain confined only to the specific reasons/issues for which case has been picked up for scrutiny. In this case, the Assessing Officer has already verified those issues for which limited scrutiny was conducted. The Ld. Pr. Commissioner of Income Tax wants the Assessing officer to look into various other issues of the assessee which were not covered within the purview of the limited scrutiny. This is not permitted within the framework of the Income Tax Act.

In the facts of the present case, these criteria are not met so far as the assessment order is concerned and therefore, we quash the order passed by the Ld. Pr. Commissioner of Income Tax u/s.263 of the Act. We order accordingly.”

17 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT 10. We further observed thatthe at page No. 3 & 4 the ld PCIT had discussed the issue in respect of claim of deduction u/s 54F of the Act and recorded the observation in the order reads as under:- "The AO is directed to examine the allowability of deduction u/s 54F on the property claimed to have been sold in the year under reference viz-a-viz source of investment in purchase of plot and construction thereon on the basis of cash book, bank book, contractors to whom payment for construction has claimed to have been made." During the assessment proceedings as well as revision proceeding the assessee had submitted the documentary evidences and explanations in respect of genuineness of the claim of deduction u/s 54Fand the AO on meticulous appreciation of evidence on record has allowed the claim of deduction which is not only accordance with provision of law but also supported from documentary evidences and as such there is no error in the Assessment order. Further also during the revision proceedings the assessee had explained with legal & valid documentary evidences that claim made by assessee on the basis of which the AO had allowed the same. It is further pointed out before ld PCIT that the facts narrated in show cause notice is apparently incorrect and false as the assessee had constructed the house on other residential plot not on the purchase in the year under consideration and in support of same the assessee had furnished evidences. The Coordinate Bench of ITAT Jaipur in the case of Virendra Singh Bhadauriya v/s PCIT reported in 211 TTJ (Jp) 452 held as under:- "The AO made full enquiries and issued questionnaire examining the entire facts of case and basis such enquiry and detailed examination, has held that

18 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT the assessee has claimed deduction under s. 54F on purchase of two flats in the same locality which is not allowable as per provisions of s. 54F and deduction was given on one residential house property subject to fulfilment of other conditions. The AO has thus restricted the claim of deduction in respect of only one residential house property to the extent of 50 per cent of investment being the share of the assessee which has been jointly purchased in his and wife's name and thus it cannot be held that the present case is based on "no enquiry" or "lack of enquiry". Even otherwise, there are limitations on the powers of the Principal CIT to the effect that he must have some material which would enable him to form a prima facie opinion that the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue and when once he comes to the above conclusion on the basis of the 'material' that the order of the AO is erroneous and also prejudicial to the interest of the Revenue, the Principal CIT or the CIT is empowered to pass an order as the circumstances of the case may warrant. An order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. In the instant case, the Principal CIT has alleged that as per proviso (ii) of s. 54F(1), no deduction is allowable to the assessee if he purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset. In this regard, the assessee purchased the second residential house vide registered sale deed dt. 12th Sept., 2015 which is well beyond the period of one year from date of transfer of the original asset on 6th April, 2014 and thus, the said act cannot be held in violation of any of the terms of proviso to s. 54F. What is relevant to determine is the date of purchase and such date of purchase is evidenced by the registered conveyance/sale deed reflecting the final payment and taking over the possession of the residential house. Merely because the assessee entered into the sale/purchase agreement on 25th April, 2014 and made payments in instalments and some of the instalments were paid within one year window after the date of sale of the original asset would not debar the assessee from claim of deduction under s. 54F. Therefore, the AO has neither ignored the said proviso nor the deduction so allowed is in violation of the provision of s. 54F and therefore, the order so passed by the AO cannot be held as erroneous due to ignorance or incorrect application of law. All the relevant facts in respect of both the residential houses have been considered and provisions of law have been rightly applied by the AO and deduction under s. 54F has been allowed to the extent of assessee's share in respect of one residential house. The 'prejudice' that is contemplated under s. 263 is the prejudice to the income-tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above

19 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT context. The AO had made full and complete enquiries with regard to claim of deduction raised by the assessee under s. 54F as discussed in detail mentioning the specific paras in the order of the assessment, the order passed by the Principal CIT under s. 263 holding that the AO has not applied correct provisions of law while finalizing the assessment indicating lack of enquiries or verification is thus not sustainable in law and therefore, the order of the CIT passed under s. 263 is quashed. (Para 6) Conclusion : AO having made full enquiries and issued questionnaire before allowing deduction under s. 54F in respect of one of the two flats purchased by the assessee and restricted the claim of deduction to the extent of 50 per cent of the investment in the said flat as it has been purchased jointly in the names of the assessee and his wife, it cannot be said that the AO has allowed the deduction in violation of the provisions of s. 54F, without enquiries, and, therefore, the order passed by the Principal CIT under s. 263 is not sustainable." During the assessment proceedings, ld AO had issued notice u/s 142(1) in which he had raised specific queries in respect of above issue and the assessee had replied each & every issue and also furnished the legal & valid documentary evidences in support of sales consideration declared by him was genuine. Further also the AO had also obtained the copies of return of income and computation in respect of other co-partners and verified the facts that the each party had disclosed the sales consideration and the total sales consideration as received are duly disclosed for taxation by the each party. It is further relevant to mention here that in the case of MangilalDeora.the AO had completed the assessment u/s 143(3) and accepted the sales consideration as disclosed by him which are page No. 5 to 31 of the paper book.The AO had exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion on the basis of

20 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT legal & valid documentary evidences and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion and also there was no revenue loss as the entire sales consideration had been disclosed and offered for taxation as per provisions of law by the respective parties. Further also the ld PCIT had not analyzed the documentary evidences and explanations available on record of the AO in right prospective & judicially manner as the legal documentary evidences and the copies of return and assessment order of respective parties are on record which itself established that the entire sales consideration as obtained from sale of land was duly offered for taxation and there was no error committed by the AO while accepting the sales consideration disclosed by the assessee. Further also the AO in the case of other party had accepted such fact while passing the assessment order u/s 143(3) of the Act.

21 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT the Revenue. Since, in the case of assessee, the assessment order could not be established to be erroneous, by Pr CIT-. The sole ground of 263 jurisdiction by the Pr. CIT was that the AO did not make proper enquiry. This itself cannot be said to be erroneous and prejudicial to the interest of the Revenue since the AO was alive on all these questions and he has called upon the assessee to produce relevant material in regard to areas which were stated by the PCIT in his show cause notice. It is very important to mention here that the ld PCIT is not specific as to the reasons why the assessment made by the AO was erroneous and prejudicial to the interest of the Revenue. The PCIT has not arrived at any independent finding for issuance of notice under s. 263. Further, a thorough enquiry has been conducted by the AO which comprised of questionnaire to which the assessee has submitted his reply, thereafter there is a notice under s. 142(1) with a query letter to which again the assessee has replied to the queries, all the notices issued by the A.O. are on the record, so it is evident there has been a detailed investigation and enquiry conducted by the AO. When such judicial exercise has been apparently made by AO, therefore the order of the AO cannot be branded as erroneous and prejudicial to the interests of the Revenue. The exercise of jurisdiction under s. 263 by the PCIT is, not valid in eye of law. For this, we rely on the decisions in the case of CIT vs. Girdhari Lal (2002) 176 CTR (Raj) 92, CIT vs. Shiv Hari Madhu Sudan (1998) 233 ITR 649 (Raj), CIT vs. Kanda Rice Mills (1989) 178 ITR 446 (P&H) and CIT vs.

22 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT Arvind Jewellers 259 ITR 502 (Guj). We also draw strength from the decision of Coordinate Bench of ITAT Indore Bench in the case of Rakesh Khandelwal V/s CIT ITA No.204/Ind/2019 dated 29.01.2020wherein it was held as under: 8. Therefore, it is not the case where there was no enquiry at all by the A.O. The assessee had furnished certain evidences, which the assessing officer has gone through. There is no dispute that the Ld. Principal CIT can exercise the revisionary jurisdiction u/s 263 of the Act. If he considers that any order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. Explanation (2) to section 263 of the Act further clarifies that an order passed by the A.O. shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of the Principal Commissioner or Commissioner (a) the order is passed without making enquiries or verification which should have been made (b) the order is passed allowing any relief without enquiring into the claim (c) the order has not been made in accordance with the order, direction or instruction issued by the Board u/s 119 or (d) order has not been passed in accordance with any decision, which is prejudicial to the assessee rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. In the present case, Principal CIT has revised the order on the ground that the A.O. has failed to make enquiries or verification, which should have been made. Ld. Principal CIT has not specified that what enquiries the A.O. has not made. There is no material suggesting that the Principal CIT has expressed his view about insufficiency of enquiry on the material placed on record. The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgement of ITO Vs. DG Housing Projects Ltd. (2012) 20 Taxmann.com 587, which has been followed by this Tribunal in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the A.O. will be erroneous because the order passed is not sustainable in law and the said finding must be recorded CIT cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous.This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the A.O. making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the A.O. had erroneously not undertaken the same. However,

23 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT the said finding must be clear, unambiguous and not debatable.The matter cannot be remitted for a fresh decision to the A.O. who conduct further enquiries without a finding that the order is erroneous finding that order is erroneous the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the A.O. would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the A.O. to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the A.O., who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry. The order of the A.O. may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT held and records reason why it is erroneous. An order will become erroneous because on remit, the A.O. may decide that order is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous the jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed that the material, which the CIT can rely includes not only the records as it stands at the time when the order in question was passed by the A.O. but also record as it stands at the time of the examination by the CIT. Nothing appears/prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the A.O. is erroneous. We find that Ld. CIT in the present case has not carried out any enquiry of his own has merely set aside the assessment to the file of the A.O. to re-examine issue of source of cash deposited by the assessee. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court in the case of ITO Vs. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee during the assessment proceedings had submitted evidences in support of sale of jewelleries and receipt of gift. Moreover, the issue of examination of source of gift was not subject matter of the scrutiny. Therefore, the decision of the Ld. CIT invoking provisions of section 263 of the Act is not justified and cannot be sustained under the facts and circumstances of the present case. We therefore, set aside the impugned order and allow the grounds raised by the assessee. The Coordinate Bench of ITAT Jodhpur Bench in the case of Shiv Lal Choudhary V/s CIT reported in 188 TTJ_UO (Jd)(UO) 57 has held as under: Revision—Erroneous and prejudicial order—Lack of proper enquiry—A thorough enquiry has been conducted by the AO which comprised of questionnaire consisting

24 ITA 22/Jodh/2021 Shanti lal Deora Vs ACIT of 24 questions to which the assessee has submitted his reply—Assessee also replied to the queries raised along with notice under s. 142(1)—Principal CIT is not specific as to the reasons why the assessment made by the AO was erroneous and prejudicial to the interest of the Revenue—Order of the AO cannot be said to be erroneous and prejudicial to the interests of the Revenue—Therefore, exercise of jurisdiction under s. 263 by the Principal CIT is not valid The case laws relied upon by the ld. PCIT in his order does not support the case of the Revenue, therefore, in light of above discussion we hold that the order u/s 263 cannot be sustained as we find that the assessment order passed by the AO cannot be said to be erroneous orprejudicial to the interest of revenue, and accordingly the order made u/s 263 is quashed.

Order pronounced in the open court on 08th September, 2021. Sd/- Sd/- (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Jodhpur Dated 08/09/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File Assistant Registrar Jodhpur Bench